The Impact of Participation in Publicly Funded R&D Projects on Firm Competitiveness: Benefits and Barriers to the Use of National and EU Funding Programmes on the Example of Swiss SMEs in the Field of Renewable Energy

MA-Thesis / Master von Manuel Kaar, Jeanette Müller

Introduction:

Never before in history has global demand for energy been stronger than today. While exhaustible resources such as oil, gas, and coal are expected to remain the world’s primary basis of energy generation in the near future, alternative resources like biomass, solar, or wind energy are predicted to grow significantly in importance (e.g. International Energy Agency, 2009). The strong global energy demand, together with rising costs of finding and exploiting fossil fuels, has contributed to a considerable increase in public awareness for the energy supply issue in recent years, and thus also to an acceleration of the investments and developments in the field of alternative resources. Yet, in order to achieve a fundamental shift away from exhaustible resources on a long-term basis, creative innovations and new technology solutions for renewable energy production are vital.

The basis for the successful development and commercialisation of such new technologies is effective research and development (R&D) work by companies, universities, and other organisations. Small and medium-sized enterprises (SMEs) take on a special role in this respect. The majority of European companies are SMEs if measured by the EU criteria (EC DG Research Communication Unit, 2010a, p. 6), that is, they have less than 250 employees, and an annual turnover and/or balance sheet total lower than EUR 50 million and/or EUR 43 million, respectively.

The large number of SMEs in Europe implies that there is a high diversity, and thus also a vast potential for innovation, in these organisations. Nevertheless, in most countries, including Switzerland, the bulk of research in the private sector is undertaken by larger businesses. In Switzerland, R&D by SMEs (SFSO definition, i.e. firms with less than 100 employees) accounted for only 16% of total in-house R&D spending in 2008, although some 99% of Swiss companies are categorised as SMEs (SFSO, 2010, p. 9). In addition, many smaller companies do not engage in R&D at all, as they simply do not possess the necessary resources.

These facts lead to a situation where much potential for innovation in smaller firms remains unused. Providing SMEs with the opportunity to engage in publicly funded R&D projects offers one way to tap into this potential for innovation that would otherwise continue to lie idle, and is therefore highly reasonable from a policy point of view. At the same time, participation in such projects potentially also has a number of positive impacts on the SMEs involved. The latter is the focus of this thesis, which concentrates on the participation of Swiss SMEs in the field of renewable energy in publicly funded R&D projects. As such, this thesis is concerned with the company point of view rather than the policy perspective.

In general, a large number of R&D funding programmes exist nationally in Switzerland and at the European level with opportunities for SMEs to participate (examples in the field of renewable energy will be introduced in this thesis). Yet, reviews of funding programmes reveal that SME participation is frequently lower than desired. This gives rise to three central questions: (i) How important is participation in a funded project for the involved SMEs in terms of the benefits they can gain from participating, (ii) What do companies which took part say about their participation, and (iii) What are the main barriers to participation? Based on these broad questions, the main goal of this thesis is to shed light on three major points: (i) the influence of SMEs' participation in a publicly funded research project on their competitiveness, (ii) the companies’ evaluation of various aspects of their participation, and (iii) the reasons for non-participation of SMEs.

To this end, the report starts with a brief review of major theories on firm competitiveness in chapter 2, with a special focus on resource-based perspectives of the firm. The empirical findings of this research project are later discussed in the light of these concepts. The thesis then continues with a presentation of selected national and EU funding programmes suitable for Swiss SMEs in the field of renewable energy in chapters 3 and 4. Here the aim is to identify the programmes’ central goals and funded activities in order to derive a list of benefits that companies can potentially gain from participation.

The most important benefits are then summarised in chapter 5, together with a list of barriers to participation. These findings form the basis of the primary research undertaken within the scope of this thesis, which in turn investigates the research questions through an online company survey on the one hand, and expert interviews with representatives of funding bodies on the other. Finally, in chapters 8 and 9 the findings from the literature review and the empirical section are contrasted and analysed, conclusions are drawn, and recommendations for SMEs are provided.

Table of Contents:

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Chapter 3.3, Funding by the CTI:

3.3.1, R&D projects:

The CTI, the Swiss Confederation’s Innovation Promotion Agency, has been providing funds for R&D and innovation projects to promote the exchange of knowledge between companies and academia for about 60 years. With a budget of CHF 532 million between 2008 and 2011, the CTI mainly co-finances market-oriented projects with a clear goal to develop products or services, and is therefore one of the most important funding institutions for Swiss SMEs. Besides facilitating projects within Switzerland, the CTI also supports companies’ efforts to join international research projects. As mentioned in chapter 3.1.2, contrary to the SFOE programmes where companies can also receive direct financial support, CTI funds are entirely used for the financing of the RTD provider’s research services. In this way, the involved companies – primarily SMEs with limited R&D budgets – have the possibility of outsourcing research activities without additional costs. This, in turn, enables them to benefit from academic know-how while focusing their resources on their own core capabilities, which usually results in a significant reduction in the time-to-market (TTM) for innovations.

CTI funding follows a bottom-up approach and is open to all research areas that create scientific innovations and economic impact. As such, innovative potential and economic impact are also the central funding criteria. The CTI support generally covers 50% of the project costs. Besides R&D project financing, two other support measures are of particular relevance for the topic of this thesis: the CTI ‘Innovationsscheck’ and feasibility studies.

3.3.2, The CTI ‘Innovationsscheck’:

The first edition of the CTI ‘Innovationsscheck’ (‘innovation cheque’) initiative was launched in 2009 as a CHF 1 million pilot project that offers SMEs, in all areas of technology, a ‘cheque’ of up to CHF 7,500 for R&D services of research institutions such as universities. The initiative specifically addresses SMEs without prior experience in science-based innovation projects and aims at encouraging them to start working with universities or research centres. Demand during the first round of the initiative exceeded supply, and as a result the initiative is currently being repeated. Participation in the second edition is exclusively reserved for SMEs active in the area of Cleantech (i.e. industries and services that preserve and maintain natural resources and systems), which can be described as unusual for the CTI, since funding by this government agency is usually not limited to a specific topic area.

3.3.3, Feasibility studies:

With a maximum contribution of CHF 100,000 per project, the CTI also offers support for feasibility studies that take less than one year to complete. The goal is to assist companies in assessing whether their idea for an innovation has a realistic chance of success and in which time frame. Feasibility studies may therefore substantially decrease the involved risk for the company and help to avoid misdirected investments that fail to deliver the expected results. CTI funding rates for this support measure are more flexible than for standard projects and can be adapted to the specific situation of the company. The business partner is obliged to actively participate in the study and must be involved in the actual project after feasibility has been confirmed.

4, R&D funding at the European level:

4.1, General aspects:

4.1.1, Europe as a research location:

Although Europe as a whole is a well-established research location and host to a large number of top-level universities, research institutions, and innovative companies, the EU also faces major challenges in this respect, such as insufficient coordination of research policies and increasing global competition for talent. Over the last few years, progress has been made towards improving the situation, most notably through the common objective to formally establish a European Research Area (ERA) that aims at the creation of a ‘[...] European ‘internal market’ for research, where researchers, technology and knowledge freely circulate [...]’.

The EU’s total R&D spending (i.e. including the private sector) was at 1.84% of GDP in 2006. As such, the Union was still far off the self-imposed 3% target defined by the Lisbon Strategy and to be reached by 2010, and lags behind other areas of the world, such as the U.S. or Asia. In 2006, Japan invested 3.39%, South Korea 3.23% and the U.S. 2.61% of their GDP in research activities. With regard to the distribution of R&D spending between the public and private sectors, the EU’s objective is to reach a total of two thirds of R&D expenditure being raised by the business sector. By 2005, this figure was at 54.6%.